The Impact of Crises on Economic Cycles
Part 3: The impact of crises on economic cycles
As we have seen, economic cycles are dotted with crises. These crises are the causes of the imbalance of the system, and they also become a necessity in order to recover. Every great crisis has enabled the states to identify faults and defects of the economy, and they are indicative of system malfunction.
Thus, States learn from their mistakes and make arrangements to avoid another crisis. This is called "purging" of the economic system. This is what we'll see in this part, the impact of crises on the system, how they can enter a new cycle.
1) The Great Depression
To understand the importance of crises in the regulation of economic cycles, we will take the most striking example in economic history: the Great Depression of 1929.
The two main lessons from the crisis of 1929 were taken as early as 1930 by John M. Keynes and consolidated thereafter. First, the recognition of the inherent instability of finance, due to the difficulty of anchoring the value of financial assets in "real" values and behavior mimics that this uncertainty creates. Be aware of this instability implies on the one hand to regulate financial markets and, secondly, the central bank, to deal quickly and with great energy the threat of bank liquidity crisis. Second, the recognition of vicious circles (economic crisis / financial crisis) that deepen each other, that convinced of the need for massive public interventions on the real, financed by an increase in public debt.
The measures advocated by John Keynes and implemented by President Roosevelt with the New Deal have two things:
Rectify the errors of the system to improve it.
Revive the economy through a strong state investment
The first point would be to be purged to remove the bad things in the system, the second to heal.
Combining the two can start a new cycle with a new upswing.
2)The current crisis
At the time of writing, we are still in an economic crisis that
As we have seen, economic cycles are dotted with crises. These crises are the causes of the imbalance of the system, and they also become a necessity in order to recover. Every great crisis has enabled the states to identify faults and defects of the economy, and they are indicative of system malfunction.
Thus, States learn from their mistakes and make arrangements to avoid another crisis. This is called "purging" of the economic system. This is what we'll see in this part, the impact of crises on the system, how they can enter a new cycle.
1) The Great Depression
To understand the importance of crises in the regulation of economic cycles, we will take the most striking example in economic history: the Great Depression of 1929.
The two main lessons from the crisis of 1929 were taken as early as 1930 by John M. Keynes and consolidated thereafter. First, the recognition of the inherent instability of finance, due to the difficulty of anchoring the value of financial assets in "real" values and behavior mimics that this uncertainty creates. Be aware of this instability implies on the one hand to regulate financial markets and, secondly, the central bank, to deal quickly and with great energy the threat of bank liquidity crisis. Second, the recognition of vicious circles (economic crisis / financial crisis) that deepen each other, that convinced of the need for massive public interventions on the real, financed by an increase in public debt.
The measures advocated by John Keynes and implemented by President Roosevelt with the New Deal have two things:
Rectify the errors of the system to improve it.
Revive the economy through a strong state investment
The first point would be to be purged to remove the bad things in the system, the second to heal.
Combining the two can start a new cycle with a new upswing.
2)The current crisis
At the time of writing, we are still in an economic crisis that